Motorola’s Continued Downward Focus

Boy those guys at Motorola really know how to run a business. Several months ago we told you about their “strategy” that included whacking R&D and then wondering why business suffered.

And if you're running a technology company that suffers from inferior products, what do you do? Cut R&D!

Motorola Labs, which developed at least two-thirds of Motorola's
patents, has been cut from 1,000 to 600 researchers. Further
reductions are expected this summer, according to people familiar with
the matter, including 200 researchers to be laid off. Only 200 would
remain in the group, the people said.

While others are looking to bulk up, Motorola is trying break up as it seeks a strategy to combat plunging sales. It has tried and failed for nearly two years to spin off its mobile-phone business, which has been in steep decline without a hit device.

Unbelievable isn’t it? I wonder what wondrous biz school taught them that “strategy.” Hey why not try spinning off another profitable piece of the company…

Motorola Inc. is exploring the sale of its biggest business unit as it seeks to split itself apart, the latest sign of the once-mighty technology giant's declining ambition in the convulsive world of telecommunications.

The division, which makes television set-top boxes and networking gear, could fetch $4 billion to $5 billion, according to people familiar with the matter.

So $4 billion or so. Not a bad sum…

The set-top-box division, which had sales of $10.1 billion last year, was built largely from Motorola's 2000 acquisition of General Instrument Corp. for roughly $17 billion. The unit's biggest competitor is Cisco, which acquired rival Scientific-Atlanta in 2005.

Oops. But presumably that division is dragging the company down.

Handsets were long Motorola's marquee business. But this year, it has been surpassed by the set-top box unit, which is called the home and network mobility division.

That business has also been hit by the economic downturn, with sales falling 15% in the third quarter from a year earlier, to $2 billion. Still, the unit remains profitable, posting operating earnings of $199 million in the period. That strong cash generation is likely what has attracted the interest of private-equity firms. TPG and Silver Lake Partners declined to comment.

Ok… Must be that strategy thing again. Buy high, sell low, right? Spin off the profitable parts of the business to create funds to support the unprofitable part.

Comments

WSJ quotes him saying: “Our very strong feeling is that you gain market share during down times. That’s when our customers have time to engineer in our new solutions even if they may not be able to buy a lot of new products right now. That’s why we said ‘Don’t cut that back’.”

Apparently, still no word on how the new Droid and Cliq handsets are doing in the market. Not likely either will come close to the then-cutting-edge Razr when it first amazed the world.

So, as a long-time, long-suffering MOT shareholder I guess I can only hope that the parts will be more valuable than the whole, eh?

Another perspective is that MOT continues to re-invent itself. As with life, things are built, torn down then rebuilt. Certainly, this is a fact of life in the technology business. Otherwise, MOT would still be making transistor radios.

Kevin, I want to share a similiar story. When times were tough several years back the company required on corporate laboratories fund 50% of their budget themselves. Meaning the qould have to seek funding. Most of the funding available is military type contracts. Not bad but they are typically extremely long term and not necessarily that large in size. No we ask oursleves why we are not the industry leading in technology. Executives can not seem to make sense of this. Lean when done properly really makes you focus hard on new product development. Lean Managemnet is a system for growth. And you might not get where you want be selling your resources to the highest bidder.

You need to be careful in interpreting “labs” with R&D – much of the development happens in the product groups and not in research. Also, remember that they no longer own the semiconductor part of the old Moto and some of these people are in that area. In addition, in the current patent system, patent count are not real sign of innovation, just how much money the company will spend on getting patents. Patents are mainly defensive in large companies.

If a private equity firm buys them, it will be the end of the STB group as the new owners will need to take cash out of the business, further cutting R&D.

In addition, many of their large customers would move to other vendors because they are aware of this.

Best cast is that one of Cisco’s competitors buys the STB group to round out their product lines.